by SRSrocco

The U.S. Government has gone to great lengths in using accounting gimmicks to prop up the financial system and domestic economy.  One area where this is readily apparent is the disconnect between the rising U.S. debt versus the annual budget deficits.

Mish Shedlock wrote about this in his article, U.S. Deficit at $590 Billion But Debt Up $1.2 Trillion: Sleight Of Hand Magic:

The US deficit is up $590 billion so one might think total US debt would rise by that amount or at least something close to that amount.

Instead, total US debt for the fiscal year that just closed soared by over $1.2 trillion. What’s going on?

The shortest answer is “deficit lies”. The longer answer involves numerous off budget items like social security do not count towards the deficit but do count towards debt.

I calculated the increase of total U.S. debt from 2000 to 2016 as well as the annual budget deficits:

From 2000-2016, the total U.S. debt increased by $13.9 trillion while the annual budget deficits equaled $9.1 trillion.  Thus, we had a net difference (or shortfall) of $4.8 trillion.  Basically, the total U.S. debt increased $4.8 trillion more than the annual budget deficits during that time period.

So, how could this be?  From the article linked above Hoisington Management stated the following about the increase in debt versus the deficits:

“From 1956 until the mid-1980s, the change in gross federal debt was always very close to the deficit (Chart 1). However, over the past thirty years the change in debt has exceeded the deficit in 27 of those years, which served to conceal the degree to which the federal fiscal situation has actually deteriorated. The extremely large deviation between the deficit and debt in 2016 illustrates the complex nature of the government accounting.

The increase in debt for that period was over $1.2 trillion while the deficit was $524 billion, a near $700 billion difference. The discrepancy between these two can be broken down as follows (Table 1): (a) $109 billion (line 2) was due to the change in the treasury cash balance, a common and well understood variable item; (b) $270 billion (line 3) reflects various accounting gimmicks used in fiscal 2015 to limit the size of debt in order to postpone hitting the Debt Limit. Thus, debt was artificially suppressed relative to the deficit in 2015, and the $270 billion in line 3 is merely a reversal of those transactions, a one-off, non-recurring event; (c) $93 billion (line 4) was borrowed by the treasury to make student loans, and this is where it gets interesting. Student loans are considered an investment and therefore are not included in the deficit calculation.

Nevertheless, money has to be borrowed to fund the loans, and total debt rises; (d) In the same vein, $70 billion (line 5) was money borrowed by the treasury to increase spending on highways and mass transit. It is not included in the deficit calculation even though the debt increases; (e) $75 billion (line 6) was borrowed because payments to Social Security, Medicare and Affordable Care Act recipients along with the government’s civilian and military retirees were greater during this time frame than the FICA and other tax collections, a demographic development destined to get worse; (f) Finally, the residual $82 billion (line 9) is made up of various unidentifiable expenditures including “funny money securities stuffed in various trust funds”.

What is interesting to take notice in the chart in the quoted text above, is that the high spike in total U.S. debt versus the annual budget deficit took place during the 2008-2009 U.S. financial and economic crash.  However, another large spike took place in 2016 as the total debt increased $1.2 trillion versus $590 billion in the budget deficit…..More Here